Global Appetite Will Drive Grains

This year's solid yields in corn, soybeans and wheat will be tested by an even stronger world demand. With slim stocks, El Nino could become the wild card in the grain-buying season.

Take all you want, we'll grow more. That's the message from farmers who produced strong corn and soybean yields and now expect a world buying spree to shore up prices.

With the harvest done, the strength of this year's market now is demand-driven. Countries, including the United States, are clamoring for more grains than ever as cattle and hog feedlot populations continue to expand. More aggressive livestock and poultry programs in Asia are contributing as well. The macroeconomic elements are bullish again for the grains regardless of the size of the crop.

Tech talk: Beans in the teens?

By Jim Martens, commodity specialist at Elliott Wave International in Gainesville, Ga

Most continuation charts only show data back to the 1970s. Since then it appears that soybeans have managed to do little more than consolidate, albeit in a wide price range. That consolidation has more dramatic significance, however, when you put it in the perspective of a chart of prices received by farmers. That data goes back much further and reveals a decades-long rally sequence, of which this consolidation represents merely a lengthy pause. This pause can be identified, in Elliott wave terms, as wave four in what will prove to be a five-wave advance from the low registered in December 1932. In other words, this "pause" is about to end, and prices are going to start moving up. What makes this long-term market perspective relevant now is that wave five may already be underway, and it should carry the cash price well above $10 and the nearby futures contract into the teens, maybe beyond.

Cattle, hog and poultry production is up and heading higher worldwide, notes Tim Hannagan, a grains analyst with Alaron Trading in Chicago. China, for example, increased its poultry 18% this year over last, and it still is pursuing a plan to double cattle and hog production over the next three years. Indonesia, an exporter of grains three years ago, now is a net importer.

And the U.S. trend is no different. Heading into October, U.S. cattle producers recorded eight straight feedlot increases for the year, a 19% gain over that period last year. Hog feedlot numbers rose 2%, and that figure is expected to grow as well. The bottom line is that more cattle, hogs and chickens simply means more grain needs to be bought.

"The expansion worldwide is still underway," Hannagan says. "Plus, the U.S. is [included] this year."

So a very bullish scenario is shaping up. Exactly how optimistic depends on several factors, including the success or failure of South American corn and soybean crops this winter.

And, of course, this year's El Nino weather pattern is the wild card in the equation. There are mixed opinions about the importance of El Nino on various crops and regions. Some analysts say Brazil's geographic proximity to the heart of the weather pattern could mean excessive rain will hamper corn and soybean production. Others say Brazilian crops historically have performed quite well during past El Nino patterns. …

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